Whether you’re just starting to dip your toes into the business or have been working in the profession for years, buying a funeral home is no small feat. In addition to considering the legal and financial concerns that come with brokering a business of any sort, you’ll also have to pay attention to the funeral home itself–how it’s currently performing, employees, current management, etc.
Learning how to buy a funeral home can be easier with the right resources. To make sure you cover each one as thoroughly as possible, you’ll want to consider teaming up with professionals.
Step 1: Partner with a Broker
No matter how experienced you are with the death care industry, buying (or selling) a funeral home is most streamlined when you partner with a broker. And while there are firms that offer generic business brokerage services, your best bet is to find a group that specializes in funeral and cemetery businesses.
For example, Johnson Consulting Group, the nation’s largest funeral broker, maintains an extensive network of funeral professionals. This allows them to figure out which business is the best match for your goals as a funeral director. Moreover, they understand the current market conditions and how you can best work with them in the future.
Step 2: Find Your Future Funeral Home
When looking to purchase a funeral home, it’s tempting to turn to public listings (similar to real estate); however, purchasing a business is deeper than matters of land, facilities, and equipment. You’ll also want to account for the state of a business–its earnings, reputation, employees, and overall positioning in the marketplace.
As a buyer, you should pay close attention to the following red flags, as they can indicate a business with problems that will carry over to a new owner:
High Employee Turnover
With any business, employee turnover is a good indication of its health. If people are constantly leaving to work elsewhere, then this indicates they’re unhappy working there, something that will become your problem if you were to take over.
Low Preneed Backlog
One of the surest ways to determine the future success of a funeral business is through its sale of pre-arranged funeral-related services. While a lengthy pre-need backlog speaks to the continued patronage of families, a lacking (or nonexistent) backlog might indicate the funeral home is struggling or employees aren’t selling.
Poor Market Positioning
If a funeral home is in an area with a shrinking population, then the outlook for its future might not be ideal. Additionally, you’ll want to consider the number of local competitors and how they stand in relation to the existing funeral business.
When purchasing a funeral business, you’ll want to see a detailed breakdown of its profits, losses, and tax returns, among other concerns. If a current owner is unable to provide you with these documents, you’ll have no way of safeguarding yourself from investing in a money pit. Disorganized financial information can also create a nightmare in terms of taxes.
Step 3: Review the Finances
When looking to purchase a funeral home, you’ll want a clear picture of a business’s financial health. During initial discussions, you’ll want to see the following:
- Three years of profit and loss statements
- Updated balance sheets
- Cash flow statements
- Three years of tax returns
- Audited financial statements
- Lists of any business debts and assets
There is no hard rule for what makes a business a worthwhile investment, as failing funeral homes can be turned around by skilled directors. What you want is as much information as possible about a funeral home so that you can make an educated decision about whether or not it’s worth your purchase.
Additionally, these financial documents will prove essential to determining a fair valuation. Once complete, you’ll have a sure idea of whether a business is worth the seller’s asking price.
Step 4: Provide Your Information
In the same way that you examine a potential business purchase, the current owner will also want to ensure that you’re a qualified buyer. First and foremost, they’ll need to know that you have access to the capital required to purchase their business. All of the funeral experience can’t make up for lack of funds.
A seller will also want to see that you have a history of business ownership, ideally as a death care professional. This assures them that you aren’t a dilettante and that you are capable of the demands of a funeral director.
To address these concerns, you’ll want to come to the discussion table with documentation of your credentials. If you currently run a funeral business, provide proof of this through your business and mortician licenses and certifications. To demonstrate your financial ability to purchase the funeral home, you could show notarized bank statements and pre-approval for SBA or other loans.
Step 5: Get in the Weeds
If you’ve made it this far in the process, you’ll want to begin to dig deep into a funeral business and figure out the finer points that won’t be expressed through financial documents. For starters, this will likely mean signing a letter of intent (LOI). This document will serve as a preliminary commitment on your part to do business with them. It also will include an NDA, allowing you to more closely look at the current operations of a funeral business.
Once you’re given access to a business’s inner workings, you’ll want to pay close attention to its employees. These are the people who will potentially work for you, so you’ll want to ask yourself if their skill sets and attitudes could work well under your leadership.
Additionally, you should look at a business’s marketing efforts which demonstrate how they interface with community members. Even the most skilled funeral professionals will have trouble saving a funeral business with a poor local reputation.
Step 6: Negotiate the Purchase
When negotiating the purchase, you’ll take into account every aspect of the business, from its land and property to its functioning as a living and breathing entity. All of these factors will come together in a valuation of a funeral business.
This is where a skilled funeral broker can be an essential source of knowledge. Not only will they understand the brokerage process, but they’ll also know the finer points of funeral home businesses, and they’ll be able to valuate the business fairly. Once they’ve determined the value of the business, you’ll be ready to put in your initial offer and begin negotiating.
Step 7: Due Diligence and Closing
Once you’ve completed your due diligence and readied your offer, the time will come to formalize the purchase agreement. This formal agreement will delineate the price and the terms of the purchase, ensuring a smooth transition from the former owner to your command. It’s essential to make sure the terms of this agreement are to your liking, and these negotiations often take several rounds to satisfy both parties.
Upon closing, all aspects of the business transaction will conclude. The title, deed, and other relevant documents are executed and exchanged, and the funds are transferred. Most often, the closing occurs at an attorney’s office.
Making the Transition Smooth
To help make the transition as smooth as possible, you’ll want to consider employing the help of experienced funeral brokers. For example, the brokerage team at Johnson Consulting Group will work with legal professionals to make sure all legal requirements are upheld.
By partnering with the JCG team from the beginning, you’ll ensure a seamless process of finding, evaluating, and acquiring a new funeral business. With their experienced financial analysts and funeral business consultants, they’ll not only pair you with ideal sellers, but they’ll help you through every stage of the process.TAKE THE RIGHT STEPS